UPDATE 2-Babcock shares dive as slower submarine spending weighs

3 Min Read

* Lowers FY revenue growth target

* Government reviews submarine spending

* Shares open down 10 percent (Adds reaction, shares)

By Kate Holton

LONDON, July 19 (Reuters) - British engineer Babcock cut its full-year revenue growth target on Thursday as delays in government spending on submarines hit its Marine division, sending its shares down more than 10 percent.

Babcock, which provides specialist support and services to groups including Britain’s defence ministry and governments around the world, also said it would sell two low-margin businesses and make further disposals through the year.

The combination of the disposals and marine slowdown prompted Babcock, a FTSE 250 company with a market value of 4.1 billion pounds ($5.4 billion), to say it now expected to see “low single digit” underlying revenue growth for the full year.

It had previously forecast “low mid-single digit” growth.

Shares in the group fell 10 percent in early trading and were down 8 percent at 742 pence by 0725 GMT despite it reiterating its underlying earnings guidance.

“Overall we view the trading update as mixed and see the reduced organic growth expectations for full-year 2019 raising uncertainty in the market, especially on UK defence environment and spending,” Goldman Sachs said.

A provider of aerial emergency services, nuclear support and fleet management, Babcock said it had clarity on the year ahead, with 83 percent of revenue now in place. Its order book of signed contracts remained stable and its pipeline of bids in progress increased.

The slowdown in its Marine division came as its naval business suffered from a temporary slowdown of revenue as the government’s new Submarine Delivery Agency reviews the timing of its planned spending.

That, combined with an expected decline in revenue from the Queen Elizabeth Carrier project is set to result in a year-on-year reduction in Marine revenues in the first half of the year. New order wins should help soften the blow for the full year however.

Babcock is in the final stages of work on the Queen Elizabeth Class Aircraft Carrier programme. HMS Queen Elizabeth was officially handed over to the Royal Navy this year. Its sister ship HMS Prince of Wales has been formally named and floated out of the build dock.

Analysts at Stifel, who rate the company as a “Buy”, welcomed the strength of the bid pipeline and the plan to tidy the portfolio.

“We see any weakness as a good buying opportunity,” they said. “Fundamentally, Babcock is a business underpinned by some attractive characteristics, operating in broadly defensive markets and with significant opportunities to grow overseas.” ($1 = 0.7663 pounds) (Reporting by Kate Holton Editing by Paul Sandle and Keith Weir)